In the cryptocurrency industry, market capitalization, or market cap, is a method for determining the size and popularity of cryptocurrencies and their current market value. The formula for determining a cryptocurrency circulating market cap is as follows:
Let’s use the world’s most popular cryptocurrency as an illustration to better understand this formula:
circulating market cap = current price x circulating supply BTC, or Bitcoin We must divide the current price of Bitcoin by the number of coins in circulation to determine its market cap. At the time of writing, one bitcoin is worth $21,450, and there are 19 million of them in circulation, so the market cap would be:
$21,450 x 19,125,843 = $410,249,332,350 or $410 billion
There is more to market cap than meets the eye. We need to dig a little deeper in order to comprehend the applications of market cap and its impact on investors, particularly in the cryptosphere.
Market cap: how and why to use it
Many think that the main cost decides a digital currency’s worth, yet it’s really the market cap that lays out the total picture and addresses the genuine worth of cryptographic forms of money. It’s a crucial metric that can show how a cryptocurrency is doing in comparison to other crypto assets and how it’s growing.
Let’s look at an example to better comprehend this. Take a look at the following scenario: There are two cryptocurrencies: A and B. Cryptocurrency A has 500,000 coins in circulation, each of which costs $2. Using the aforementioned formula, we have:
Now, let’s say cryptocurrency B has a circulating supply of 150,000 coins and each coin is worth $5. Its market cap is equal to $1 million. That is $3 more than one cryptocurrency A coin’s price. Find the market cap now.
As can be seen, despite the fact that a single cryptocurrency B coin is worth more than a single cryptocurrency A coin, its market cap still falls below cryptocurrency A’s total market cap.
Consequently, the formula for calculating a cryptocurrency’s market cap is useful for determining its total global value. Nonetheless, it is essential to take into account the cryptocurrencies’ volatile nature, which means that their prices can dramatically fluctuate in response to market conditions and other factors.